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Canada Inflation

Canada: Base effect causes core inflation to slip to a record low in February

March 18, 2011

In February, consumer prices increased 0.3% over the previous month, matching the rate observed in January. The reading was slightly below market expectations of a 0.4% rise. Annual headline inflation inched down from 2.3% in January to 2.2% in February. Higher prices for energy (+10.6% year-on-year) continued to be the key inflation driver and increased at a faster pace than in January (+9.0% yoy). On the other hand, clothing and footwear prices as well as recreation, education and reading prices fell in February. Annual core inflation, which excludes oil and fresh food prices, fell from 1.4% in January to 0.9% in February, the lowest level since January 1984 and remains well below the 2.0% target set by the Bank of Canada. The drop in core CPI is purely transitory and associated with a sharp drop in hotel prices in February after they peaked during the Vancouver Olympics in 2010. The Bank of Canada forecasts headline inflation to average 2.1% in 2011 and 1.9% in 2012.

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The Ivey Purchasing Managers Index (PMI), prepared by the Richard Ivey School of Business, declined a seasonally-adjusted 2.6 points from November to 60.4 in December—coming in below the 62.2-point reading that market analysts had expected.